How Divorce Can Impact Your Social Security Payments

Divorce can have long-reaching financial consequences that can make it harder to ensure a stable retirement for yourself. The good news is that the Social Security Administration continues to acknowledge your relationship with your former spouse, even if you have striven to forget about it. Divorced partners may potentially collect spousal benefits based on the work records of their ex-spouses. This can be a boon for retiring divorcées — especially those who earned less than their spouses.

Here's what you need to know about how your benefits might be affected by a former marriage.

Social Security's rules for spousal benefits for divorced couples

Not every divorced beneficiary is eligible for spousal benefits based upon their ex-spouse's work record. The Social Security Administration has several rules in place that you must meet in order to be eligible.

Rule 1

The marriage must have lasted for at least 10 years. This is bad news for Kris Humphries (whose marriage to Kim Kardashian famously lasted only 72 days), but it does ensure that any long-term marriages will offer a modicum of financial protection to each spouse.

Rule 2

To collect spousal benefits based on your ex's work record, you have to remain single post-divorce. However, if you do end up remarrying and your subsequent marriage ends in death, divorce, or annulment, you might still be eligible for benefits based on your original ex-spouse's work record.

Rule 3

If you've remained single and your ex got remarried, the spousal benefits you collect will not affect the benefits that your ex and his or her new spouse are entitled to receive.

Rule 4

Even if your ex has not yet applied for benefits, you may collect spousal benefits based on his or her record. You just have to meet two requirements to collect these benefits:

Your ex-spouse must qualify for his or her own retirement benefits. That means he or she must have reached at least age 62 (the earliest age to collect benefits) and be eligible for benefits based on his or her own work record.

You must have been divorced for at least two years before the date of your filing for spousal benefits.

Rule 5

You may only collect divorced spousal benefits if you have reached age 62.

Rule 6

If you collect spousal benefits before reaching your full retirement age, you will receive the spousal benefit plus your own retirement benefit, minus a reduction amount. Both benefits will be reduced based on the number of months you have to go until your full retirement age.

Calculating spousal benefits

The spousal benefit can make a financial difference for divorcées who earned less than their exes. However, because of the way that spousal benefits are calculated, individuals who earned about the same amount as their spouses will see very little benefit — or possibly none at all. That's why it's important to understand exactly how spousal benefits are calculated.

It all starts with a number that Social Security, in its infinite wisdom, refers to as the Primary Insurance Amount, or PIA. The PIA is the full amount of money to which you are entitled as of your full retirement age. Your PIA is calculated using the average amount of money you earned monthly during your 35 top earning years.

Your spousal benefit is calculated using your PIA and your spouse's PIA, using the following formula:

50% of Spouse's PIA - Your PIA = Your Spousal Benefit

For example, Charlotte and Ingram divorced several years ago. Charlotte was the breadwinner for most of their marriage, and her PIA is $1,800. Ingram's PIA is $850. Let's look at what they'd each potentially receive as spousal benefits:

50% of Charlotte's PIA - Ingram's PIA = Ingram's Spousal Benefit

(50% of $1,800) - $850 = $50

Ingram's spousal benefit will be $50.

50% of Ingram's PIA - Charlotte's PIA = Charlotte's Spousal Benefit

(50% of $850) - $1,800 = -$1,375

Charlotte's spousal benefit will be treated as $0.

Since Charlotte earned so much more than her husband, she will not be eligible for spousal benefits based on his work record. (This is true whether they remain married or get divorced.)

As for Ingram, $50 does not seem like much, but this spousal benefit will be added to his retirement benefit. This means he will have a monthly benefit of $900 (his PIA of $850 + his spousal benefit of $50), provided he waits until his full retirement age to take benefits.

The importance of timing

The longer you wait for Social Security benefits, the more you will receive — to the tune of nearly 8 percent per year between age 62 and age 70. This is also true for divorcées hoping to receive spousal benefits, although there is a point of diminishing returns when it comes to spousal benefits.

Let's look at an example:

Mina and Nicholas divorced after 25 years of marriage. Nicholas is eligible for a PIA of $2,400 as of his full retirement age, and Mina is eligible for a PIA of $1,000 at her full retirement age. Since Nicholas has a much higher PIA than Mina, he will not be eligible for spousal benefits. Mina's spousal benefits can be calculated as follows:

50% of Nicholas's PIA - Mina's PIA = Mina's Spousal Benefits

(50% of $2,400) - $1,000 = $200

Mina's spousal benefit will be $200.

However, when Mina chooses to take her benefits can affect just how much she will receive. Specifically, if she applies for her benefits before reaching her full retirement age, both her PIA and her spousal benefits will be reduced based on the number of months she has to go until her full retirement age.

If she applies for her benefits after reaching her full retirement age, however, her PIA will be increased by what's known as delayed retirement credits. But those delayed retirement credits can nullify the spousal benefit, however, because she will receive either the PIA plus delayed retirement credits or the PIA plus spousal benefit — whichever one is greater.

Let's say Mina's full retirement age is 67. Here are three of her timing options:

Mina's Option 1

She files for benefits at age 62, as soon as she is eligible for them. This means she'll be taking benefits 60 months before her full retirement age, which means her PIA will be reduced by 30 percent and her spousal benefit will be reduced by 32.5 percent. Mina's benefit will be calculated using the following formula:

Mina's Option 2

She waits to file for her benefits until she reaches her full retirement age. Mina will receive her PIA of $1,000, plus her spousal benefit of $200, for a total monthly benefit of $1,200.

Mina's Option 3

She waits to file for her benefits until she turns 70. Since her full retirement age is 67, waiting until age 70 will earn Mina an additional 124 percent in delayed retirement credits. Mina will receive her PIA of $1,000, plus her delayed retirement credit of $240, for a total monthly benefit of $1,240. Since her PIA plus delayed retirement credit is greater than her PIA plus spousal benefit (which would be $1,200), she will not receive her spousal benefit if she waits to file for benefits until age 70.

Social Security ever after

Understanding just how your Social Security benefits might be affected by your divorce is an important part of retirement planning. Make sure you know exactly what you are entitled to so you don't miss out on money that can help make your retirement more comfortable.

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